BSP call on exporters to bear with volatile peso

CEBU, Philippines – The Bangko Sentral Ng Pilipinas (BSP) reiterated its call for exporters to bear with the strengthening of the Philippine Peso to the US dollar, instead adopt other measures to stay competitive.

"The long term performance of the export sector is not determined by price competitive-ness alone. Other reforms aimed at increasing productivity are as important in raising and sustaining over-all external competitiveness," said BSP officer-in-charge Nestor A. Espenilla Jr., in a letter to the Seaweed Industry Association of the Philippines (SIAP) president Benson U. Dakay. This was in response to the industry's plea for BSP to manage the foreign exchange movement to protect exporters.

Espenilla has responded to the letter sent by Dakay addressed to President Benigno Aquino III earlier, to consider the exporters that are hurting because of foreign exchange wild upswing.

Despite BSP's strong policy not to intervene with the market forces that led to the strengthening of the Philippine peso to the US dollar, exporters believe that the BSP has the power to manage the peso's movement so as not to sustain its competitiveness in the foreign markets.

In Dakay's letter, it proposed that BSP should limit the exchange rate fluctuations to no more than one-half of one percent, (of the reference rate) per trading day, and to limit the peso appreciation to not more than the annual inflation to maintain export competitiveness.

"We would like to point out that BSP adheres to a market determined exchange rate policy. This means that the BSP does not target or support a given level or band of exchange rate, but allows the interplay of supply and demand for the currency to determine the foreign exchange rate. Under inflation targeting, which has been the BSP's framework of monetary policy since 2002, there is greater allowance for movement in exchange rates in any direction," Espenilla explained.

The BSP officer-in-charge added that there is also greater discipline to enter the foreign exchange market only under well-specified circumstances, such as to smooth destabilizing volatilities in the foreign exchange rate in order to maintain orderly market conditions.

However, Espenilla said that this does not mean that BSP is indifferent to the development in the foreign exchange market, but it pays careful attention to the condition, as foreign exchange movements can have important effects on inflation and inflation expectations.

BSP's participation is limited to promoting orderly conditions in the foreign exchange market to avoid destabilizing the economy and provide a more predictable environment for planning.

"Certain sectors could be adversely affected by a peso appreciation while other sectors could benefit from it. However, the BSP's mandate necessarily takes a macroeconomicwide perspective for the good of the economy as a whole," Espenilla said adding that the challenge for those who will be affected by foreign exchange movement is to raise competitiveness and reduce cost through efficiency-enhancing measures.

"The BSP had, in fact, organized a series of regional conferences this year to discuss issues that impact on the country's external competitiveness. Through these conferences we hope to raise the awareness of exporters and importers and among others on the various ways to manage foreign exchange risks and to highlight the various factors that impact on the country's external competitiveness," Espenilla stressed. (FREEMAN)